Cities Service and Colorado Interstate cases, it places producing properties in the rate base at depreciated cost and allowed 6% percent return on the valuation. In fact it required the Cities Service to place 68,000 acres of producing leases in the Texas Panhandle at its rate base of zero and required the Colorado Interstate to place 47,000 acres of producing leases worth over three million dollars in its rate base at only $4,200. The Commission then allowed a return of 6% percent on zero valuation in one case and an evaluation of $4,200 in the other. Thus if an oil producer sells his casing-head gas to a natural gas company, he runs the risk of being declared a natural gas company himself under the Interstate Case, or having his oil properties placed in the rate base of throwing all the cost of producing and delivering the gas charged against his oil production and too of being compelled to give his gas away without even recovering the cost of gathering and compressing.

Under these circumstances no prudent operator could well afford to sell his casinghead gas to a natural gas company on anything except a temporary sort of contract, until the Natural Gas Act is so amended as to remove the threat of control by the Federal Power Commission. It would be ruinous if he did. It is earnestly suggested that the Railroad Commission of Texas should not take any precipitative action which would tend to compel the operators at Conroe to sell their gas to natural gas companies under existing circumstances. Such a course would not only lead to virtual confiscation of the casing-head gas of the operator, but would only encourage the further encroachments of the Federal Power Commission.

Attention is invited to the recent staff report of the Federal Power Commission in which it was stated that if the Federal Power Commission regulates the sale of gas by the producer, it will inevitably be compelled to take over the regulation of the producing of the oil as well, because the production of oil and gas is so closely related. By forcing operators to sell their casing-head gas to long interstate lines at this time, the railroad commission would only be jeopardizing its own jurisdiction and would be inviting Federal control.

I would like to say also there is another impediment in the way of the solution of the problem of disposing of casing-head gas in a number of fields. In most of these fields it is essentially a cooperative problem. Ordinarily there is not more than enough gas to justify the erection of more than one casing-head gas plant in a field. Oftentimes it is essential for the operators themselves by cooperative action to erect a casing-head gas plant, to install the necessary gathering and compressing facilities and to deliver their gas, residue gas jointly to some purchaser. I think all of us ought to be disturbed by a recent opinion by the Attorney General in connection with House bill 67 now pending in the Legislature, because he in effect held if operators under existing Statutes cooperatively join in building and operating plants of this sort and gathering and compressing and delivering their gas to a purchaser jointly, they may be violating the antitrust law. I don't know how the operators are going to solve the problem if the railroad commission tells them, unless they do solve the problem their wells are going to be shut down, when the only way on earth they can successfully solve the problem is by cooperative action. Then if the Attorney General comes along and says they are going to be prosecuted for joining in a cooperative action and trying to solve the problem, it leaves the operators between the devil and the deep blue sea and they don't know where to turn.

Mr. LLOYD. Didn't the Attorney General say if it is done on a voluntary basis perhaps there would be no infringement of the provisions of the antitrust law? Mr. BAKER. No, under existing statutes they couldn't cooperate, under his opinion. He was saying the legislature could enact the statute which would authorize it with proper safeguards and have a valid exception to the antitrust law and not invalidate it generally. I think it is timely, and I think it is fair to call the attention of the commission to the situation that is faced by the industry in Texas today; and I believe there is going to be no solution to this problem until some means is found of authorizing operators in many, many fields in Texas to tackle and solve this problem of saving and marketing their casinghead gas.

Mr. BAUMEL. The operators in the Stratton field worked out their problem and that is not against the antitrust law.

Mr. BAKER. That remains to be seen, whether the Attorney General will take that position.

Mr. BAUMEL, Does your company take the position that gas which is produced with the oil-gas which has been produced with that oil-has fulfilled its function as far as its energy, and so forth, is concerned?

Mr. BAKER. No, sir, we do not, Mr. Baumel. Our company has thought all along that casinghead gas ought to be saved and utilized for useful purposes.

Mr. BAUMEL. How about this gas which is produced to the surface and does not go through any plant but is popped to the air as wet gas? Is that avoidable physical waste?

Mr. BAKER. In some cases it is and in some it is not. In some cases the production is not large enough to justify the erection of casinghead plants and the field may be isolated or for various reasons you may not have a market available for the gas. Under those circumstances all you can do is pop your gas, and I do not think it is physical waste to do so under the statutes of this State. Mr. BAUMEL. In this field where it has already been proven it is feasible and economical to put that through a gasoline plant and strip it, is the remaining gas which is not put through the plant and popped as wet gas, is that avoidable waste in this field?

Mr. BAKER. You are asking me a sort of legal question, but I think under the existing circumstances it is unavoidable, because I do not think that the operators can now process the gas under existing circumstances, and it is going to take a good while before they can get the necessary material to do it.

The above is certified to be an exact copy of our official transcript of April 9. Hearing on the control of field, called for the purpose of having the operators show cause why the oil wells of that field should not be closed in until they find some means of utilizing the casing-head gas produced incidentally with the oil. ERNEST O. THOMPSON.

STATEMENT ON FLARE GAS BY ERNEST O. THOMPSON, CHAIRMAN, RAILROAD

COMMISSION

It might be helpful for a statement to be made at this juncture clearly setting out what we are endeavoring to get the oil producers to do in the matter of saving the gas and liquid hydrocarbons now being flared into the air.

We have called these show-cause hearings to ascertain with certainty what you are doing to prevent waste by flaring.

What is feasible and possible to be done in each field?

What is the economical thing to do in each instant field?

What is a reasonable time for compliance?

We realize that each oil field presents a different and distinct problem.

A place must be made in the picture for the fruits of conservation. The liquid hydrocarbons recovered must be utilized by refiners and the residue dry gas must be preferred in the market demand for gas for fuel.

The purpose of these show-cause hearings is to expedite the working out of a fair, reasonable, and economically feasible plan in each field to save this gas and the liquids.

We must ascertain by these hearings what would be a reasonable time for compliance in each instance, field by field.

We have no ideas of punishing anyone, but we do want action in the stopping of waste by burning casinghead gas in flare.

(Penciled notation on margin of letter: "This letter expresses the idea we are trying to get across. This is true conservation. This shows what can be done.-E. O. T.")

MAGNOLIA PETROLEUM CO.,

Dallas 1, Tex., April 7, 1947.

Hon. ERNEST O. THOMPSON,

Chairman, Railroad Commission of Texas, Austin, Tex.

DEAR COLONEL THOMPSON: On June 3 we are opening a new gasoline plant on our West Ranch properties near Vanderbilt. This plant will be one of the first of Texas that has been constructed since the war designed for the complete utilization of recoverable liquids and the remaining residue gas.

We hope that you and the other members of the railroad commission will honor us by your presence that day. A barbecue at noon has been arranged at which the other operators in the field and our employees will be present.

Our sincere interest in the conservation of the gas resources of Texas prompts us to mark this as a signal occasion. We believe it would be most appropriate if you would switch the master gate extinguishing the flare and directing the residue gas into the line to our Beaumont refinery.

We will appreciate your early advise as to whether or not you will be able to be with us on this occasion. We shall be glad to arrange transportation so as to fit your schedule for that day insofar as it is possible.

Yours very truly,

R. M. CHAN.

EXHIBIT 5 OF ERNEST O. THOMPSON-THIS SHOWS A CASE WHERE IT IS NOT Now ECONOMICALLY FEASIBLE TO COLLECT FLARE GAS

OIL AND GAS DOCKET 128 NO. 3-10-380, RAILROAD COMMISSION HEARING ON GAS FLARING AT MAGNET WITHERS AND NORTH WITHERS FIELDS, WHARTON COUNTY, TEX. (CALLED FOR APRIL 9, 1947, AT AUSTIN, TEX.)

Prepared statement of gas engineer to be presented

The problem of casinghead-gas utilization in the Magnet Withers and North Withers fields has been an active project of the Texas Co. petroleum engineering department since August 1945. There are three major phases to the problem: 1. Recovery of liquid hydrocarbons from the casinghead gas.

2. Beneficial disposition of the casinghead gos.

3. Conservation of Miocene gas now used for lifting of oil.

Charcoal tests for liquid content of gas from representative tank batteries of the two fields made by a commercial laboratory on April 11, 1946, is as follows:

It is impossible with present gasoline-recovery systems to commercially extract liquid hydrocarbons from this gas. It is understood that three companies during the early life of the fields indicated interest in installation of gasoline recovery plants in these fields but offered no proposal after testing gas.

The possibility of gathering and compressing casing-head gas for sale to transmission lines has been considered. Proposals have been discussed with two gas transmission companies. One proposal requires gas compressed to 395 pounds. Cost of gathering the gas is 1 cent per thousand cubic feet and cost of compression is 2.3 cents per thousand cubic feet for a total cost of 3.3 cents per thousand cubic feet. The transmission company proposes a 3 cents per thousand cubic feet price measured at 2 pounds over a 14.7 pound base with no correction for compressibility. This price adjusted to a standard cubic foot of gas is actually 2.53 cents per thousand cubic feet. Loss to the seller under this proposal would be 0.77 cents per thousand cubic feet. The second proposal is similar and provides a loss to the seller of 0.74 cents per thousand cubic feet.

Since royalty and production tax is paid on well-head value, it is our contention that the sale of gas under proposed conditions would not benefit the seller, the land owner, or the State.

A program for the conservation of dry high-pressure gas from the Miocene sand now being used for lifting of oil in wells producing excessive water is in progress. Field tests supplying basic data have been completed and design of artificial lift system is being prepared to supplant present gas-lift method.

TESTIMONY OF ERNEST O. THOMPSON-ANOTHER EXAMPLE OF IMPOSSIBILITY OF REQUIRING STOPPING OF FLARING DUE TO LOW SELLING PRICE

OIL AND GAS DOCKET 128 NO 3-10-380, RAILROAD COMMISSION HEARING, GAS FLARING AT MAGNET WITHERS FIELD, WHARTON COUNTY, TEX. (CALLED FOR APRIL 9, 1947, AT AUSTIN, TEX.)

Prepared statement summarizing previous testimony and drawing certain conclusions

1. Summary of the geological conditions indicate

(a) The producing formation is a part of a blanket sand extending over a large flat structure.

(b) The sand is subject to an active water drive.

(c) A gas cap is present.

(d) The producing section comprises a short oil column.

2. Summary of the petroleum engineering data indicates

(a) The water drive present in the field is efficiently maintaining formation pressures as indicated by a 225-pound pressure decline over the 10year life of the field.

(b) The produced gas-oil ratios are normal and indicative of efficient recovery.

(c) Gas lift, using dry gas available in the Miocene gas reservoirs, is used for wells producing water. It is to be noted that additional gas is required only during the periods wells are producing water, and that at such times as workers shut off the water production, the wells are again able to flow without extraneous gas.

(d) The return of gas to the gas cap or other parts of the field is not necessary, because the effective water drive maintains formation pressure near the initial conditions.

(e) The return of gas to the gas cap may reasonably cause waste by a reduction in the ultimate oil recovery due to the possible expansion of the gas cap lowering the oil-gas interface, permitting gas channeling into a large number of wells which may be completed near this interface.

(f) Th field has been and is now being produced efficiently within the regulations established by the railroad commission.

3. Summary of the testimony by gas engineer:

(a) Better means for the utilization of gas now being flared have been considered and to date no beneficial use has been found.

(1) The liquid hydrocarbon content of the gas is low. Very little, if any, product could be recovered from the gas by the available types of gasoline plants.

(2) Efforts to contract for the sale of gas, to gas pipe lines supplying light and fuel markets, have been unsuccessful. The terms proposed for purchase are insufficient to cover cost of installation and operation of necessary facilities required to gather and compress the casinghead gas to make ready for delivery.

(b) Means for reducing the volumes of dry Miocene gas, being used for gas lift operations, are now being studied and have reached the stage requiring the design of a gathering system and compressor plant. It is proposed that casinghead gas be gathered at the separators and compressed to the desired pressure for gas lift operations. Completion of these facilities will permit closing in production from the Miocene gas wells until a market is found.

4. In my opinion the following facts are evident and justify the conclusions drawn:

(a) The volumes of gas produced and used are not excessive;

(b) The liquid hydrocarbon content of the gas is practically unrecoverable and therefore of no value or benefit;

(c) The gas now being flared is without beneficial use;

(d) The return of gas to producing formation is not required as the water

drive and gas cap provide effective recovery mechanism;

(e) Waste is not being committed as now defined by the commission regulations; and

(f) Therefore, there is no cause for closing in the field in order to conserve this natural resource.

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